Microsoft declines Nscale data center expansion option in Texas

Microsoft has declined a contractual option to expand its data center compute capacity with the British artificial intelligence firm Nscale in Texas. The decision effectively removes the possibility of a deal that could have been worth tens of billions of dollars, according to reports from the Financial Times.

While the expansion option was rejected, the original agreement signed in October 2025 remains in effect. Under that contract, Nscale is set to provide Microsoft with approximately 240 megawatts of compute capacity in the Ward County area of Texas. This deployment is expected to involve about 104,000 Nvidia chips, with operations slated to begin in the third quarter of 2026. The original agreement contemplates that Nscale will supply Microsoft with approximately 104,000 Nvidia chips in Texas starting from the third quarter of 2026.

Status of the Texas Infrastructure

The rejected expansion option was linked to a second phase of development within the Texas project. While initial descriptions suggested a capacity of 700 megawatts, Nscale clarified that the option specifically concerned approximately 500 megawatts of additional infrastructure at its own facilities. Because Microsoft opted not to exercise this right, Nscale must now seek alternative clients to fill that capacity if it hopes to secure the associated future revenue.

The primary project in Texas is situated on land adjacent to facilities developed by the cryptocurrency mining company Ionic Digital. Documents filed by Ionic Digital with the U.S. Securities and Exchange Commission indicate that Nscale has not yet secured the necessary power supply for the remaining capacity at the Ionic site, though Microsoft retains a right of first refusal on that capacity. In its IPO prospectus, Nscale noted it has a capacity of up to 1.2 GW set to come online in Ward County, Texas.

Broader Context for Nscale

The decision by Microsoft comes as Nscale prepares for a potential initial public offering with a valuation of approximately $35 billion. The firm’s board includes figures such as former Meta executive Sheryl Sandberg and former British Deputy Prime Minister Nick Clegg.

Este desarrollo sigue a un movimiento previo ocurrido este año, cuando Microsoft rechazó un acuerdo de 3.000 millones de dólares para alquilar capacidad de procesamiento en un centro de datos de Nscale en Essex, Reino Unido. Despite these shifts, Nscale maintains that its total portfolio of pending contracts remains valued at $103 billion, according to the Financial Times.

Nscale Reports Heavy Losses Amid Debt Concerns

The company is under pressure to secure new contracts to service the debt used to build its massive infrastructure. Providers like Nscale, along with peers such as CoreWeave and Nebius, have faced increased scrutiny regarding their reliance on debt to fund large-scale investments. Nscale reported net losses of $1 billion on revenues of $141 million in the first half of 2026 and is also developing facilities in Portugal and Norway. The company claims to have a potential energy capacity of 10 GW “on the horizon,” a figure equivalent to the annual electricity consumption of nearly all households in the United Kingdom.